With the Section 179 deduction, businesses are allowed to deduct the entire purchase price of qualifying properties in a single year instead of waiting several years to recover their cost through depreciation.  

One of its most popular uses is for deducting business vehicles. But did you know that the Section 179 deduction has a special limitation when it comes to vehicles? Make sure to read this blog before you fully rely on this law for your next vehicle purchase. 

What Vehicles May Qualify? 

Same with other qualifying properties, vehicles are subject to the Section 179 qualifying requirements: 

• Brand new or used vehicles may qualify as long as it is “new to you” in the year it was placed in business. 
• Must be acquired by purchase, either fully paid or loaned, in the same year you are filing as an immediate deduction. 
• The business percentage use of the property should be more than 50%. 

Special Limits for SUVs and certain Other Vehicles 

The Section 179 deduction on vehicles used to be known as the “Hummer Tax Loophole” since some wealthy business owners took advantage of this law by purchasing expensive Sports Utility Vehicles (SUVs) and take them as an immediate business deduction. The law has then set certain limitations depending on the type of vehicle. 

For the tax year 2024, the maximum Section 179 deduction is $30,500 ($28,900 in 2023) for heavy SUVs with gross vehicle weight from 6,001 pounds but not more than 14,000 pounds. 

However, this limit does not apply to any of the following vehicles: 

• With gross vehicle weight of at least 14,000 pounds. 
• Designed to carry at least 10 people behind the driver’s seat. 
• With cargo area of at least 6 feet in interior length and is not accessible from the passenger compartment; or 
• Has an integral enclosure fully enclosing the driver compartment and load carrying device, has no seating behind the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. 

Business vehicles meant for singular use such as ambulances and hearses are also fully deductible. Qualified nonpersonal use vehicles, such as those that have been specifically modified in a way that they may not likely be used for personal purposes, also have an unlimited Section 179 deduction. 

Vehicles weighing not more than 6,000 pounds have a maximum limit of $12,200 in tax year 2023 (The limit for the tax year 2024 is yet to be announced.) 

Section 179 Deduction Limits 

Vehicles are, of course, still subject to the general limits of Section 179 deduction.  

For the tax year 2024, the dollar limit or the maximum amount that you can deduct using the Section 179 deduction is at $1,220,000 ($1,160,000 for tax year 2023). 

If your total qualifying purchases placed in business for the tax year 2024 exceeds $3,050,000 ($2,890,000 for tax year 2023), then your dollar limit will be reduced by the amount in excess of the purchase limit.  

Furthermore, after applying the above limits, you can only deduct up to the amount of your taxable income for the year you are electing the Section 179 deduction. 

Disposal of Vehicles 

The Section 179 deduction allows you to fully deduct in a single year the cost of your vehicle, and therefore save on taxes. However, if you decide to sell such vehicle before the end of its expected life, you may have to owe and return a portion of those saved taxes. 

Want to learn more? 

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